Section 89A for Returning NRIs: Complete Guide
On 1 April 2026, the Income-tax Act, 1961 stopped applying to new tax years.
The Income-tax Act, 2025 took its place.
For most people this is a renumbering exercise.
For a returning NRI, it is more than that. You may hold a 401(k), an IRA, an RRSP or a UK pension pot. The relief you knew as Section 89A now lives at Section 158.
The form you filed as Form 10-EE is now Form No. 40.
The underlying problem it solves has not changed at all.
At Belong, we speak to people every week who are three months away from landing in India. Almost none of them have thought about what their retirement account does to their Indian tax return.
This guide is our attempt to close that gap.
The mismatch that Section 89A was built to fix
India taxes residents on worldwide income. It taxes most income when it accrues, not when you touch it.
The United States, the United Kingdom and Canada do the opposite with retirement accounts. Growth inside a 401(k) or an RRSP is left alone. Tax arrives at withdrawal.
So a returning NRI faces a timing clash.
India wants tax this year on gains you cannot access. The US wants tax fifteen years later on the same gains. You end up paying twice, in two different decades, with no clean way to claim credit.
Section 89A of the Income-tax Act, 1961 was inserted by the Finance Act, 2021 to fix exactly this. It applies from assessment year 2022-23 onwards. The same relief now sits at Section 158 of the Income-tax Act, 2025.
The relief is not an exemption. It is a shift in timing.
👉 Tip: Section 89A does not make your foreign retirement income tax free in India. It moves the Indian tax year to match the foreign one.
Who qualifies as a "specified person"
The law is narrow. It uses three defined terms.
Specified person.
A person resident in India who opened the account in a notified country. Crucially, you must have opened it while you were non-resident in India and resident in that country.
Specified account.
An account maintained in a notified country for your retirement benefits. Income from it must be taxed by that country at withdrawal or redemption, not on accrual.
Notified country.
Only Canada, the United Kingdom and the United States are notified by the CBDT.
That third point matters. Several popular tax sites list Australia as a notified country. It is not. Check the current list on the income tax portal before you rely on any blog, including this one.
If you opened a 401(k) after moving back to India, you are outside the definition. The account had to be opened while you were a non-resident.
Which accounts actually fit
Ordinary investment accounts do not qualify. Neither do bank deposits. The relief is built for locked, deferred-tax retirement structures only.
The Roth IRA is the genuinely hard case. Qualified Roth withdrawals are not taxed in the US at all. If the notified country never taxes the withdrawal, the trigger event that Section 89A depends on never arrives.
Practitioners disagree on how India should treat that. Get written advice from a chartered accountant who has handled Roth cases before. Do not rely on a forum thread.
How the relief actually works
Rule 21AAA of the Income-tax Rules, 1962 carried the machinery. The Income Tax Rules, 2026 now carry it forward under the new Act.
Here is the sequence.
You become resident in India.
Income accrues inside your foreign retirement account.
You exercise the option in the prescribed form.
That accrued income is left out of your Indian total income for the year.
It enters your Indian total income in the year the notified country taxes it.
Income that was already taxed in India in an earlier year does not get taxed again. Nor does income that was not taxable in India because you were non-resident or RNOR at the time. The same applies to income shielded by a treaty.
One nuance most guides skip entirely. Foreign tax paid on that income is ignored when computing foreign tax credit under Rule 128.
Commentators have flagged this as sitting awkwardly with treaty relief. Plan around it rather than assume a credit will appear.
The form, the deadline and the one-way door
The option is exercised in a prescribed form, filed electronically.
Under the old regime that was Form 10-EE. Under the Income Tax Rules, 2026 it is Form No. 40.
The deadline is the due date for filing your return under Section 139(1) of the old Act. Miss it and the relief for that year is gone.
Three features of the option catch people out.
It applies to all your specified accounts.
You cannot pick one 401(k) and leave another out.
It is irrevocable.
Once exercised, the option carries into every subsequent year. You cannot withdraw it because your tax position later improves.
It unwinds if you leave India again.
If you become non-resident afterwards, the option is treated as never exercised. The accrued income for the intervening period becomes taxable in the year immediately before that.
That last rule deserves a slow read.
Say you return to India, opt in, and then take a posting in Singapore four years later. Years of deferred accrual can land in one Indian tax year. That is a compounding problem, not a paperwork problem. If you understand compounding, you can see why the bunched year hurts.
👉 Tip: If a second overseas posting is even possible, model the unwind before you opt in.
Where RNOR fits in
This is the part returning NRIs get wrong most often.
Section 89A is a relief for residents. During your RNOR years, most foreign income sits outside the Indian net already. The exception is income from a business controlled in India.
So the sequence usually looks like this.
You land in India. You spend a year or two as RNOR. Your 401(k) grows quietly, untouched by Indian tax.
Then you become ordinarily resident. Only now does Section 89A start doing real work.
Getting the RNOR window right is therefore step zero. Our guide on NRI, resident and RNOR status changes walks through the day-count mechanics.
Many returning NRIs also use the buffer period after returning to India to restructure. That is the cheapest time to make decisions. It is also the window most people waste.
Section 89A is not the only tool
Treat it as one instrument in a set, not a complete answer.
The India-US DTAA still governs how a pension or annuity is allocated between the two countries. Our pieces on avoiding double taxation on pension income and pension income tax for returnees cover that side.
Disclosure is separate from relief. Even when income is deferred under Section 89A, the account is a foreign asset. It belongs in Schedule FA. Our guide on reporting foreign assets in NRI tax filing explains the schedule in detail.
UK returnees have their own version of this problem. Start with managing UK pension pots and UK retirement accounts after returning.
US-based readers should read our 401(k) retirement planning guide alongside this one.
What happens if you ignore this
The consequences arrive slowly, then all at once.
Year one.
Nothing visible happens. You do not report accrual. No notice arrives.
Year three.
Your Indian return and your US filings start telling different stories. Information exchange between tax authorities is routine now.
Year six.
You begin withdrawals. India asks for tax on the full amount. You claim credit for US tax. The credit is questioned because the accrual years were never reported.
Year seven.
You are reconstructing account statements from a former employer's plan administrator. Interest and penalty are running.
The financial cost is rarely the headline. The cost is that a locked retirement account becomes an open compliance file.
Our guide on tax filing for returning NRIs covers the wider return-year checklist. Managing overseas income after returning covers the income side.
The currency layer nobody models
Your 401(k) is denominated in dollars. Your Indian tax liability is denominated in rupees.
Over a long deferral period, the rupee has generally weakened against the dollar. Reasonable people expect that trend to continue in some form.
That cuts both ways.
Deferring tax means your Indian liability is measured on a rupee value that may be larger at withdrawal. The asset grew. The exchange rate moved. Both push the rupee number up.
Against that, you kept the money invested and compounding for years. You avoided selling into an illiquid account to fund a tax bill. For most people the second effect dominates.
Still, model it. Depreciation of the rupee is not a footnote in a cross-border retirement plan. It is a main variable.
Understanding real return rather than headline return is what makes this comparison honest.
For NRIs and for resident Indians
These two situations are different. Keep them separate.
If you are an NRI planning to return.
Section 89A is directly relevant to you. Map your RNOR window, identify every specified account, and decide on the option before your first ordinarily-resident filing.
If you are a resident Indian who never worked abroad.
Section 89A does not apply. You have no specified account, because you never opened one as a non-resident.
But the underlying lesson does travel. A portfolio concentrated entirely in India carries currency risk you may not have priced. Building USD exposure is a separate decision from Section 89A.
Resident Indians can access global funds through GIFT City without the friction of the LRS route abroad. Compare options on our GIFT City mutual funds tool and see the mutual fund products page.
A returning NRI's liquidity bridge
Here is a pattern we see often.
Someone returns to India with a large dollar retirement account and very little rupee liquidity. They are asset rich and cash poor. Then a tax payment or a school admission lands.
Breaking a retirement account early is the worst way to solve that. Penalties abroad, tax at home, and a permanent dent in the corpus.
The better answer is a separate, accessible dollar layer that sits outside the retirement structure.
GIFT City is useful here for exactly that reason. You can hold USD-denominated investments in an Indian jurisdiction, with clearer repatriation and no dependence on your 401(k).
Funds worth comparing include the DSP Global Equity Fund and the Tata India Dynamic Equity Fund.
Two more sit alongside them. Look at the Edelweiss Greater China Equity Fund and the Sundaram India Mid Cap Fund.
The fixed-income side of the bridge needs its own comparison. Our NRI FD rates explorer lets you compare across banks in one place.
Larger portfolios sometimes look at GIFT City alternative investment funds. Those carry higher minimums and lower liquidity, so treat them as a later step.
If you want equity exposure with a defined event, GIFT City IPOs are now a live route. Details sit on our IPO products page.
Timing your India entry is easier when you watch pre-market signals on the GIFT Nifty tracker.
Some returnees choose to keep money in GIFT City even after becoming resident. Whether that suits you depends on goals, not on tax alone.
Decision clarity
Read this block as a set of if-then rules.
If you hold a 401(k), IRA, RRSP or UK pension, identify every account now. Note exactly when each one was opened.
If you opened the account while non-resident and resident in that country, you likely meet the specified-person test. Confirm with a chartered accountant.
If you are still in your RNOR window, you may not need the option yet. Track the year you become ordinarily resident.
If your accounts sit outside Canada, the UK or the US, Section 89A does not help. Look at treaty relief and foreign tax credit instead.
If a second overseas posting is likely within five years, model the unwind rule before opting in.
If your only US account is a Roth IRA, get specific written advice. The general rule does not settle this.
If you have no rupee liquidity on landing, build the bridge before you need it. Do not plan to raid the retirement account.
👉 Tip: The option is irrevocable. Treat it as a planning decision, not a filing formality.
The mistake we see most
An investor returned from New Jersey after eleven years. Substantial 401(k). Careful person, good records.
He assumed his RNOR status covered him indefinitely. It did not. RNOR is a transition status, not a permanent one.
By the time he became ordinarily resident, two filing seasons had passed without an option being exercised. Reconstructing the position was expensive and slow.
The lesson is not about Section 89A specifically. It is about opportunity cost in compliance. The cheapest year to act is always the year before you have to.
The second most common mistake is assuming this is a filing problem. It is a time value of money problem wearing a form number.
FAQs
Is Section 89A still valid after the Income-tax Act, 2025?
Yes. The relief continues at Section 158 of the new Act, effective from 1 April 2026. Income earned in FY 2025-26 is still assessed under the old Act.
Which countries are notified?
Canada, the United Kingdom and the United States. Verify the current list on the income tax portal, since notifications can change.
Which form do I file?
Form 10-EE under the old rules, Form No. 40 under the Income Tax Rules, 2026. Both are filed electronically before the return due date.
Can I withdraw the option later?
No. Once exercised, it applies to all subsequent years. It unwinds only if you become non-resident again, with tax consequences.
Does Section 89A cover my foreign brokerage account?
No. The relief covers retirement benefit accounts taxed at withdrawal. Ordinary brokerage and bank accounts are excluded.
Do I still report the account in Schedule FA?
Yes. Disclosure of foreign assets is separate from the timing relief. Deferral does not remove the reporting duty.
Does this apply to resident Indians who never worked abroad?
No. You must have opened the account while non-resident in India and resident in the notified country.
Sources
Income Tax Department, Section 89A text: https://www.incometaxindia.gov.in/w/section-89a-47
Income Tax Department, Form 10-EE guidance: https://www.incometaxindia.gov.in/w/form-10ee
CBDT Notification No. 25/2022, notifying Canada, the United Kingdom and the United States
Income-tax (Sixth Amendment) Rules, 2022, introducing Rule 21AAA
Income-tax Act, 2025 and Income Tax Rules, 2026, effective 1 April 2026
Rules, forms and notified-country lists change. Verify the current position on the income tax portal before you file.
Disclaimer
This guide is general information, not personalised tax or investment advice. Cross-border retirement taxation is fact specific.
Please consult a qualified chartered accountant before exercising any option under Section 89A or Section 158. Investments carry market risk. Read all scheme documents before investing.
